The Chinese Government’s crackdown on the insurance sector is expected to cut growth in half over two years, according to S&P Global.

Credit analyst Eunice Tan says tighter regulation will reduce financial risks that have been building in China’s insurance industry.

However, that will cause growth to slow.

Higher compliance costs and greater regulatory intervention will lead to insurance premium growth of 20% next financial year, compared with 40% in 2016, S&P says.

Insurance penetration will reach 5% by 2020, as measured by the ratio of insurance premium to GDP.

Tighter controls on the industry began last year.

A “super regulator” was created this month to cover the insurance and banking sectors, along with the expansion of regulatory powers at the People’s Bank of China.

Last month’s seizure of Anbang Insurance Group exemplifies the insurance regulator’s increasing intervention on financial risk, the ratings agency says.

Centralising financial policymaking and supervision will lead to a more consistent regulatory framework. But efforts to align China’s insurance sector with global insurance norms may slow as a result. Smaller players will have a harder time adjusting to the changes.

S&P has cast doubt on the regulatory efforts’ effectiveness. Chinese insurers may need to increase risk allocations to find higher-yielding investments amid low interest rates.

The insurance industry’s allocations to long-term real estate, infrastructure and wealth management products expose it to credit and market risks, the agency says.

The relaxing of rules to allow insurance companies to participate in state-guided investment activities may also entail risk if their balance sheets are used to bail state-owned companies.